FY 1977 defense budget--CBO briefing and analysis

Material Information

FY 1977 defense budget--CBO briefing and analysis seminar
United States -- Congress. -- Senate. -- Committee on the Budget
Place of Publication:
Washington, D.C.
U.S. G.P.O.
Publication Date:
Physical Description:
iii, 56 p. : ; 24 cm.


Subjects / Keywords:
Budget -- United States ( lcsh )
federal government publication ( marcgt )
non-fiction ( marcgt )


General Note:
At head of title: 94th Congress, 2d session. Committee print.
General Note:
Includes index.
Statement of Responsibility:
task force on defense of the Committee on the Budget, United States Senate, February 18, 1976.

Record Information

Source Institution:
University of Florida
Holding Location:
University of Florida
Rights Management:
This item is a work of the U.S. federal government and not subject to copyright pursuant to 17 U.S.C. §105.
Resource Identifier:
025824840 ( ALEPH )
02552294 ( OCLC )

Full Text



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1 71.,


67-M W 1I TOT 19.7


EDMUND S. MUSKIE, Maine, Charman

WALTER F. MONDALE, Minnesota J. GLENN BEALL, JR., Maryland
JOSEPH R. BIDEN, JR., Delaware
SAM NUNN, Georgia
DOUGLAS J. BENNET, Jr., Staff Director
JOHN T. McEvoY, Chief Gownsel
ROBERT S. BOYD, Minority taff Director
W. THOMAS Fox WLL, Director of Publiotions

ERNEST P. HOLLINGS, South Carolina, Chairman

SMICHAEL B. JOY, Tak Force Coordinator
AIt A- .*-; **l
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4, *.' I"

444 ; 5 d ; ;


Senator Hollings---.. ..--.... ----.........------ 1


Rivlin, Hon. Alice, Director, Congressional Budget Office, accompanied by
John E. Koeher, Assistant Director for National Security and Interna-
tional Affairs; Robert B. Pirie, Deputy Assistant Director, NSIA; Gary
Nl principal analyst, and Robert F. Hale, analyst-------------- 3


Q and A-Committee members to witnesses, writen.:
Senator Hollings to Gary Nelson, principal analyst, OBO------------ 51

INDEX ------ ---------------------------------------------


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Wa shington, D. .
The task force met at 10:10 a.m., pursuant to notice, in room 357,
Russell Senate Ofice Building, Hon. Ernest F. ollings (hairman of
the task force) presiding.
Members present: Senators Hollings, Muskie, Moss, Cranston,
Chiles, Buckley, and Domenici.
lforce coordinator and Andrew Hamilton, professional staff member. '

l Cers p W:sk t ~ a e ;Mi lE :B. Joy, task

Full Co ittee: Douglas J. ee, Jr., eto; John T.

Senator H. We appreciate our chairman being here.

Today the defense task force begins its examination of the national
defense budget, function 050. The administration has asked for $114.9
billion in budget authority for this function, and estimates outlays of

The increases over 1976, as shown in the President's budget are:
Budget authority th- -n--$12.7
Outlays ---- ----------------- ----- -- --- -------- +8. 3

the Department of Defense, military assistance, the nuclear weapons

Services Admninistration.

Factoring out inflation, and measuring the constant dollar or real
increase from 1976 to 1977, we find that national defense budget au-
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thority grows about $5.3 billion. But the increases are much larger
in some portions of the budget, while other parts have been cut.
Let me start by listing the decreases. One big decrease is in military
assistance. Budget authority for military assistance is down. $2.3 bil-
lion in constant dollars, compared to last year. This is due mainly to
higher receipts in the foreign iiy sals trst fund, wich is not
under direct congressioal contro.

Next, we must consider a number of spending restraints which will
require legislative action. In total they save about $3.7 billion in fiscal
1977. If these actions are not taken by Congress, the savings will not
occur. This potential added cost will have to be borne in mind during
our consideration of the defense budget.
The major restraints requiring congressional action are:
First, a proposed permanent change in the formula used to establish
comparability between Federal and non-Federal pay. By iself, this
action will save about $1.7 billion in defense budget pay raises for mili-
tary and civilian employees, compared to present law.
Second, proposed temporary pay caps for military, civil service, and
wage board personnel. These caps would save about $800 million more.
Third, a change in the military basic allowance for quarters, reduc-
tions in reserve pay and drills, a commissary surcharge and other
actions that will save about $300 million.
Fourth, repeal of the 1-percent kicker in Federal retirement annuity
adjustments. The kicker increases retired pay at a rate faster than
growth in the Consumer Price Index. Repeal would save about $100 to
$200 million in 1977.
Fifth, legislation will be requested to authorize an additional selloff
of strategic stockpile materials which the administration believes to
be in excess of requirements. The administration calculates that if the
legislation is passed early in the session, it will realize about $750 mil-
lion in receipts from stockpile sales.
In addition, the administration's budget also proposes some person-
nel reductions, less military construction, and a few other scattered
savings. It is hard to get a complete list of these other actions. They
may add up to savings of about $500 to $600 million. I hope that our
witnesses today can supply us soon with a reliable list of these other
spending cuts.

Now let me turn to the increases in the President's proposed defen
budget. When inflation is factored out, these total over $10 billion in
budget authority. With the exception of several small items in the per-
sonnel and retirement areas these increases are found in the budget for
defense purchases, and represent real growth of nerly 20 perce I
have here a list which shows where $9.7 billion of these increases are
to be found.
to be s. *.o u^^^ .^"d.^t .


In crent In constant Percent of
dollars 19 dollars real growth

eral civilian pay .. ................. $3. $1.8 10. 6
Procurement, excluding Federal pay 6.7 30.2
Research, development, test, and evaluation,
excluding Federal pay _-_---..... .....--- L 4 .8 10.
and management funds ...-- .22 .21 144. 2
Atomic energy --- --........... .......---. 3 .2 10.0
Total-- ---- 13.0 9.7 1 19. 6

As we continue our review of the 1976 defense request, we will seek
more information on the reasons for these large increases in defense
purchases. Our witnesses today are from the Congressional Budget
, s with the Drector, Mrs. Alice Rivlin.
Mrs. Rivlin, we welcome you to this seminar. You and your staff
have recently completed some studies of the defense budget. We are
Sto your views on this complex subject and in particular, on
ways in whi we can ferret out the waste and inefficiency in the defense
budget and defense manpower. We are also interested in getting your
views on the opportunities for doing something about rising defense
manpower costs, particularly in the area of military retirement.
Why don't you identify each person and their capacity with the


Dr. v I will be delighted todothat.On my rightisJohn
Koehler, who is assistant director for CBO for National Security and
International Affairs. On his right is Robin Pirie, who is his deputy
for national security; and Bob Hale next to him, and Gary Nelson,
both of whom work on manpower. Theyare going tobe ing the

We have arranged an informational briefing at yourrequest, Mr.
Chairman. Clearly the defense item is a large one in the budget. The
BO work on the budget for the Budget Committees takes a couple of

out options in defense over the next 5 years, that we hope will be useful.
*. *l. IE "l"-.i i' a' r;yiii '' '*. J K ***' *


Another is a series of moreeaed i papers which we also
will be useful to you and the staff.
What we would like to do this morning is just briefly run through
what seemed tus to be the major issues, with emphasis on manpower.

Senator TOLLI-Ns. There is one other question. Senator Muskie had
asked about a study to be made about the impact of inflion upo the
defense budget. Do we have that updated' ?
I think you had a draft report last November.
Dr. Rivr I. We have a further study. Whatwe had last Nvember
was a preliminary loo at it. This is a study done at the request f
both Budget Committees that is just about finished.
Is that riht, John ?
Mr. KoEI iLR. That's right.
Dr. RIvLIN. That is one thing you will have very quickly.

I would like to turn this over now to John Koehler. The basic
format for the presentation is we will begin with the manpower
issues in this year's budget, which are majo, and lay out what needs
to be said about those. Please interrupt or ask questions or anything
at any point, and then we will move on to the overall defense buet
at the end.
Mr. KOEHLER. Mr. Chairman, I would like to start, first, with Bob
Hale, who will describe briefly some of the basic issues in the man-
power area. These dominate defense costs. will addresshe question
of why manpower costs so much and ho it has. grown in the past
Following that, Gary Nelson wil describe some of o wok on e
evaluation of various manpower alternatives, how one might go about
saving money in the manipower bdg.
Subsequently Robin Pirie can talk to the committee on t i and
character of the real growth in this year's defense budget. It is para-
doxically both a turnaround, real growth budget and in soe respects
a very austere budget, depending onQ wther one loos at fis yar
1977 outlays or fiscal year 1977 budget authority.
That difference is very important; it poses som;e probles tha
Mr. Pirie will discuss for the way the cngrssoal p
has to handle this year's defense budget, because mo unrttes
will remain to be resolved at the time of the irst conurrent roion.

Finally, he can take you briefly through :he major force alternatives
and options that are analyzed in our report, showing the range of
""Treatment of Price Changes in the Defense Budget."

alternatives and their cost implications out for 5 years in the ground
forces, the naval forces, the tactical air forces, and the strategic forces.
In keeping with the informality why don't I just pass it to Bob now
to take over on the manpower costs?
Mr. 1 hi fiscal 1977 budget the President proposes to reverse
the sharp growth in the costs of Defense manpower which have
occurred mi recent years. May members of Congress have also shown
an interest in ways to reduc these ost. his morning we would like
to discuss some alternatives which do reduce the costs of defense






Mr. LE. We begin by briefly discussing why manpower costs have
grown over the past 12 years. I think this is useful because it points
out of where ou ought to kfor we
will describe the reductions the President has proposed. What I want
todo is empasizewhatthe Congrewillave to do in order to
implement these reductions.
Finally, Gary will take over and discuss two important issues that
the CBO has looked at in some detail and which we think wibe
important during this session of Congress; namely, the pay raise caps

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What we have to saiy together will take about 20 or 25 minutes and
we would be glad to answer questions as we go or at the end.

(Outlays in $ Billions)

FY 1977,
FY 19,64 FY 1976 ('Pres. Budget)

Manposwer 22. 0 49. 4 51.8

Total Defense 50.8 91. 2 100. 1

Percent Manpower 43% 54% 52%

Mr. HALE. This next slide indicates the sharp growth in defense
manpower costs. In fiscal 1964 Defense spent about $22 billion, about
43 percent of all its outlas on manpower. By fiscal 1976 that was
up to $49.4 billion or about 54 percent of all its outlays.
The President proposes to reverse this trend. He will propose some
cuts in manpower that I will get to in a minute, and he is also increas-
ing procurement. The net effect of both of these is to reduce the
percentage spent on Defense manpower to about 52 percent.


1964 1976 % Change

Military Personnel
Number (millions) 2. 69, 2. 10 -22%
Annual Cost per Person $4600 $11,200 +143%

Defense Civilians
Number (millions) 1.04 96 -9%
Annual Cost per Person $7000 $15,900 +127%

Private Manufacturing
Workers Annual Earnings $5300 $10,400 +97%

Price Level 100 180 +80%

Mr. HALE. The next slide, I think, suggests why manpower costs
have grown. The slide shows the numbers of active duty military per-

some and Def ense civilians and their cost per person in fiscal 1964
and fiscal 1976. For a comparison it also shows earnings of workers
in the privatte manufacturing sector and changes in the, price level.
Clearly, Defense has cut its numbers of employees, particularly
iilita emiployees, but these re uctions have been more than offset
by increases in the cost per person.
The cost per person of active duty military personnel has gone up
Sp nt btween fisc 194 and fiscal 976 while cost per Defense
civilian has gone up 127 percent. Both these increases are significantly
larger than increases in non-Defense workers' earnings.

The reasons for high growth are fairly clear. There were large
raises in the late 1960's to achieve comparability, and significant raises
for the military enlistees in the early 1970's.
Senator BUCKLEY. May I interrupt at this moment ?
In terms of the Defense civilian employees you say the rise in cost
per person is significantly higher than the private sector, but is it
in line with the rise in the public sector, namely, the Federal
Government ?
Mr. HTAl. I think the civilians as a whole would show a similar rise.
I think one l eat reason for that rise. especially perhaps in the civilian
sector, is there have been significant increases in the average grade.

Chairman MUSKTE. Is there now comparability ?
Mr. HALE. I think, as Gary suggests, in the sense that we are getting
enough people of the right quality, yes. That seems to me a reasonable
Chairman MuSKIE. You could be getting that if you were above
Mr. HALE. Yes; that is true.
Senator HOLLINGS. Is there any extravagance in that so-called
comparability ?
Mr. HALE. You have to take into account what is going on in the
economy. We must look not only at Federal wages, but unemployment
and civilian wages in 1975. With a major recession maybe we could
have accepted lower salaries, in 1975.
But I think that Gary's discussion will show you that in the future,
given the projections of how the economy is going to go, and looking
out, say, 5 years, that the wages are not extravagant.
Mr. NELON. We have a chart that goes to that later.

Senator BUCKLEY. If I could pursue this further and pin it down,
whether it is comparable or not, is it fair to say the pay scales, et cetera,
in the Department of Defense are comparable to HEW and so on ?
Mr. HAE. Yes; I think so.
Chairman MUSKIE. In terms of comparability, did the military per-
sonnel have farther to go in 1964 ?


Mr. HA. Yes that is certainly true. Because of the drr
There have been some improvements in the quality of people, par-
-ticularly military. They are slightly better e ducated and, more im-
portant, perhaps, they are al vounteers. Therefore p ctivity
should be higher and there is some justification for payig more for
these people.
Nonetheless, I think the point I want to make about the slide is it
does suggest we ought to look particularly closely at salaries or m-
pensation in searching for ways to reduce anpower costs.
I would like to turn now to the manpower cost reductions proposed
by the President in his fiscal 1977 budget.


Cu rent P oli cy $5 5 5

New Comparability
-- Military -1. 2
-- GS 5

Pay Cap
-- Military -.4
--GS -.2
-- Wage ~Board -.2

Other Compen sation -.7
-- Housing
-- Grade Reductions
-- Reserve Pay
-- Other
1% Kicker -.1

Personnel Cuts -. 3

Other -.3
President's Budet__ $5.9

Mr. HALE. This next slide shows those reductions. The $55.8 billion
at the top of the slide is the CBO current policy manpower cost. The
number assumes we have the same numbers of people as in fiscal 1976,
and the same compensation policies. In other words, all we doto get
it is take fiscal 1976 costs and adjust them for anticipated inflation.
The negative numbers below the $55.8 indicate the cuts proposed
by the President. Taken together, they result in the President's budget
authority of $51.9 billion.

The largest cuts are achieved by reducing pay raises. I would like
to discuss the cap on military and general schedule civilian pay raises
first, because it is handled differently than the cap on wage board-
that is, blue collar-civilians.
The current policy number of $55.8 billion assumes a 12-percent
raise for military and general schedule employees. This 12 percent is
a catchup raise. It is designed to return to full comparability under
the current definition of comparability. It compensates for lost raises
last year when the raises were capped and also for expected increases
that will occur this year.
However, the President proposes changing this definition of
comparability based on the recommendations of the Rockefeller Com-
mission. Under this new definition the President estimates the com-
parability raise at 6.3 percent rather than 12 percent included in the
current policy number. So this new definition saves about $1.2 billion
for military and $500 million for general schedule civilians.
But the President doesn't propose giving even the 6.3 percent raise.
Rather, he proposes a raise limited to 4.7 percent and that will save
another $400 million for military and $200 million for general sched-
ule. Either house of Congress can reject this proposed cap.

In addition to the cap on military and general schedule, the Presi-
dent proposes limiting raises given to wage board civilians to 3.4 per-
cent, whereas that current policy number at the top assumes an
increase of 9.2 percent.
Whereas either House can overturn the pay cap in the case of the
military and general schedule, it would require a change in existing
law to allow the President to cap wage board raises.

Next the President has proposed cuts totaling $700 million in other
items which affect compensation of active duty personnel. The Presi-
dent proposes reducing construction of new family housing, limiting
maintenance of existing family housing to essential items, cutting
average grades slightly of both civilian and military active duty per-
sonnel, cutting out certain Reserve pay and some other more minor
The President also proposes cutting retired pay by eliminating the
so-called 1-percent kicker, which is a feature of the current retire-

ment law that causes aniuities o those who have already retired to
this-eduction requires that Congress change existing tatutory law.

tion of the 1-percent kicker together represent over three-quarters of
the reductions proposed by the President, and they are all aimed in
one form or another at what you could call compensation.
So I think it is fair to say that the President's proposed reductions
do mphasize cuts in compensation.
But le does propose, om.e cut in personnel, primarily civilian per-
o l, that are goig to in line with thbase closures that he in-
tends to propose. He makes some other miscellaneous reductions and
me ml icreses whic, tkn to her, total $700 million.
I have alluded several times in this discussion to the actions Con-
gress must take to allow implJeentation, of these cuts. I think it is
worthwhile to summarize these same cuts again, showing which
depend on various types of action by the Congress.


($ Billion of BA)
FY 1977

Current Policy $55.8

Redefinition of Coparability -1. 7
Change Statutes 5.

Wage Board Cap

Reserve Pay
Concentrating Raise on BAQ.-
Cadet Pay
*. '_ Pa_ '
Vote of Either House -.

President's Budget $51. 9.
|: e '"i. + *t'+ B u d ge t $ I.


Crst you $ r..,i *..Ji rih .f o ril $ i a
Mr. HAir. About $1.7 billion of the savings depends on the Presi-
dent's redefinition of comparability, which presumably could be over-
turned by the Congress or could be challenged in the courts. I
think that raises an interesting question because later in the summer,
as you are voting on the pay cap, if the issue of what the definition
will be hasn't been resolved, it won't be clear whether you are going to
cost yourself $1.7 billion or perhaps $2.3 billion. That is potentially a
serious problem.

Another $500 million depends on changes in the existing statutory
law. Included here are the .wage board cap, the 1-percent kicker,
and then some other smaller reductions including various changes in
Reserve pay, concentration of a part of the pay raise on basic allow-
ance for quarters, and some minor changes in pay for military cadets.

Yet another $600 million of the savings require that neither House
of the Congress reject the military and general schedule pay caps.
Finally, the last $1.1 billion in reductions could be changed by Con-
gress in the normal process of authorization and appropriation review.
I have tried to give you an idea of what the President has recom-
mended and the actions Congress would have to take.
Now I will turn the discussion over to Gary Nelson, who will go into
the issues of pay caps and retirement modifications.

Mr. NELSON. What I would like to do now is to look in greater detail
at a couple of areas where the President is proposing changes. CBO
has done some analysis in the area of the pay cap and of ppssible
changes in military retirement.
The pay cap is important because, as we saw earlier, it is the largest
single .method of reducing manpower costs below the current policy
The question we are going to address is a relatively simple one: Can
the military continue to recruit successfully under the pay raise cap
proposed by the President or under other pay caps the Congress might
choose to impose. As you recognize, military recruiting is not the only
factor to assess in deciding whether to impose a pay cap, but surely it
is an important one.
In looking at the effects of a pay cap we have deliberately chosen to
look at the next 5 years in order to gauge the effects of future economic
developments and future pay raises on recruiting in both the short
term and the long term. Our analysis indicates that in 1977 Defense
should be able to meet recruiting requirements under the President's
4.7-percent pay raise. This conclusion is based on the results of statisti-
..- *'* '* ; > *; * 1' '** *
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cal studies that have Thestudies relate the
number of highly qualified enlistees to the level of military pay, the
level of wages in the civilian sector, and the rate of unemployment.
In projecting enlistments, we employed three sets of economic
assumptions: The longrange assumptions the President published in
Sc paths used by the CBO in its report
to the Congress.
Under all three assumptio the economy i not expected to be fully
recovered in 1977. On top of this, military recruiting has been ex-
tremely effective in recent months. We estinate that recruiting will be
adequate under the President's 4.7-percent pay cap and, moreover, that
the ilitary can still recruiteffectively in 1977 with no pay raise at all.
By 1981 there is a somewhat different picture. cruiting shorta
ay occur if pay raises continue to e limited and if the economy con-
tinues to improve. Under thePresident's pro ected pay increases ov
the next 5 years we estimate that the military may just reach military
recruiting trgets or perp just fall short,d,ay fall short by
larger amount if the economy improves more rapidly than expected.
In any event, it will undoubtedly require greater recruiting expense

and these are all items that have been cut back rather severely in the

On the subject of a continued pay cap, the President has indicated
but in this past year Congress has imposed a pay cap and this year will
be considering one. If a pay cap is continued out through 1981 at about
S et re, w ear im
in military recruiting. What will tend to happen in that case is that
the military will either have to lower enlistment standards or accept
manpower shortages.
Clearly given the economic picture for 1977 and the healthiness of
ilitary recruiting today, the stillcan recruit effectively
given a pay cap for 1977.

The second topic we are going to talk about is military retirement.
In 1976 Defense is spending about $7.4 billion on military retirement.
This is the fastest growing part of the defense budget since it was only
$1.2 bil we estimate itllio and

The size and rate of growth of military retirement have attracted
considerae a, as ou no and ihis year and next the Con-
gress will be considering a number of specific proposals that will affect

Specifically we are goingtotalk about the 1-percentkicker andthe
issue of retirement reform.
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Increases Due To
So t a l I. .
Outlays Population Higher HIig her .
($ Millions) Growth Pay PPrices

1976 $7,400

1977 8, 600 350 40 830

1978 9, 700 620 120 1,530

1979 10, 600 8700 30 2, 070

1980 11, 700 1, 110 370 2,840

1981 12, 800 1, 350 530 3, 530
Mr. NELsoN. Now in this slide the first column shows the projected
annual level of retirement outlays through 1981. The next three col
umns are designed to show why retirement costs are growing.
There are three reasons. One is that the number of retirees are grow-
ing. The second is that people retiring every year are retiring at
higher pay levels, and third is due to the adjustments in retired pay
that occur as prices rise in the domestic economy.
Now as we can see from this, the population growth is indeed sig-
nificant out through 1981, but most of the increase in cost-about 65
percent-is due to higher prices that are projected in the civilian
sector. I would also think if we took a retrospective view going back
to 1970 would show the same thing.
It appears that any attempt to control or to cut costs over the next
5 years must consider the mechanism that adjusts the pay level for
those already on the retired rolls.
The most controversial aspect of this mechanism is the 1-percent
kicker. Under Federal law since 1969 retirees receive a 4-percent raise
whenever the Consumer Price Index goes up by 3 percent. This 1-per-
cent net raise-or kicker-was presumably to compensate retirees for
the lag in adjusting pay levels, but it has the effect of boosting retired
pay above the level of the Consumer Price Index.
Under the 1-percent kicker pay raises since 1969 have totaled 13
percent more than the increases in the CPI. The kicker is particularly
expensive during periods of rapid price rises because then this kicker
comes into play more frequently. In recent years it has been empoyed
on average, more than once a year.

There are basically two proposals to change the cost-of-living ad-
justment mechanism to eliminate the kicker. The President has pro-

posd simplygetting rid of the kicker,making the military retirees
ke social security recipients and other ensionrs, ho reie ad-
justments some months after price rises occur. Howver, the fense
Manpower Commission has a proposal, which is considerably more
complicated, that would awar etirees a special aditional lump-sum
amount at the time they receive a -pay raise. This will make up for

... tq l 1 0 t h p
At the present rates of inflation there is a lag of about 8 months
between the time prices rise above the special base and the time. the

1977 1981

Growth Due to Dire ct DMC
Higher Prices Elimination Proposal

1977 $830 $90 + $390

19.78 i1,530 220 + 90

1979 2 ,070 330 50

1980 2,0840 510 +130

1981 3, 530 670 310
Mr. NELSo This slide shows the savings or the additional costs
over the next 5 years under the direct elimination of the kicker-the
President's proposal-or the Defense Manpower Commission pro-
posal. Under the President's proposal the first year's savings are
estimated to be $90 million. These savings compound very rapidly
over time and reach nearly $700 billion by 1981.
The DMC proposal will, in fact, reduce costs over the long run, but
the net effect in the short run is to increase costs, particularly in 1977
where we forecast there will be two retired pay adjustments.
In terms of short-run costs the DMC proposal is indeed more ex-
pensive than the present system with the kicker.

In addition to proposals that affect costs over the next few years,
the Congress will also be considering proposals to make major changes
in nondisability and military retirement. The effects on costs are
likely to be small in the short term, but retirement reform can lead to
major saving in the decades to come. We are discussing it today be-
cause retirement reform interacts with many other changes in person-
nel and manpower management in the military and because retirement
reform is also, I think, important in assessing proposals such as con-

tributory retirement, a subject we believe to be of deinterest to
the Budget Committees.

The major id ea underlying retirement rfo r are (1) to sae
money on retirement costs, and (2) to provide incentive8 for better
management of the military forces. nder the present system
personnel retire at 20 years of service with 50 percent of base pay-for
life or 30 years of service with 75 percent bse pay for life.
The 20-year career is particularly expensive because mot et
are around 40 years of age at retirement. But not only is retirement
expensive, it can alo be- counterproductive in terms of management.
For one thing, the retire nt system provides little incentive for initial
reenlistment, because retirees dbn't receive any benefits unless they
serve 20 years. For another, it encourages individuals to leave after
20 years of service rather than staying in a longer period of time.

Mr. NELSON. The next chart shows figures that were taken fom
tables prepared by the DOD actuary. These portray the retention pat-
terns for personnel entering the military service In the first coumn
we show the proportion remaining at various points in time out of an
original group of 1,000 people that enter. Now note that of those 1,000
only about 200 are left in the military after 5 years. After this, how-
ever, the loss rate slows down very much and from 5 to 20 years oly
about another 100 leave military service. After 20 years the losses
again occur very rapidly.

i i" ;


Number Percent Reaching
R f emainn g R e Retirem e mnt

N? mber Entering 1000 *1!

After 5 Years 211 51%

After 10 Years 137 78%

After 15 Years 115 93%

After 20 Years 107 100%

After 25 Years 21 100%

AfEtr 30 Years 7 00%.

mt tlU

Mr. NELSON. Aceording to these figures, only 7 out of an initial
1,000 people who enter the military service are still around after 30
Looking at these figures in a slightly different way, the second col-
umn hows that of the number who enter military service, approxi-
atly percet will stay to reach retirement. However, ofhose who
are there in the 5th year, over one-half of these individuals will be
around to collect retirement benefits. Very few individuals leave mili-
tary service between 10 and 20 years and a major factor in this, of
course, i the fact that one foritall retirement benefits by leaving
before 20 years of service.

A major force behind the desire for benefit reform is to try to change
these retention patterns in order to save money and to retain the kind
of force.the military needs. Two comprehensive proposals have been
made inthe past few years to reform military retirement, the Retire-
ment Modernization Act proposed by the administration which the
House Armed Services Committee has announced it will take up this
year, and an earlier proposal made by a Federal Interagency Commis-
sion in 197i.
Both proposals would try to reduce costs and improve management
by making several changes in the retention pattern of personnel.
One of those changes would try to increase the number of people
staying in at initial reenlistment by providing benefits to individuals
who leave military service after about 10 years of service. The second
is to save money on these very costly 20-year retirements y re-
ducing benefits to individuals who retire at 20 years; anid the third
would be to try to increase the number of people who stay in for a
career to stay to 30 years or to stay a longer period of time by increas-
ing the iet rise in their retirement pay for staying in past 20 years of
Senator DOMENICI. Might I ask a question on that ?
Senator HOLLINGS. Certainly.

Senator DOMENICI. Wouldn't your latter thrust encourage us to
have a very old military agewise, and is that a good policy ? Wouldn't
the average age of those serving our Nation's military-wouldn't it
increase drastically and have many more old men in the service?
Mr. NELSON. It certainly could under some plans, but I believe from
reading the studies of the groups that have proposed these plans
that this will not happen. Moreover, at present the median age of a
man in military service is 24 years of age.
Senator HOLLINGS. Can I interrupt there since I am an expert on
this? I am 54 years of age. My classmate just retired after 30 years
in the military. I think I am typical. I don't think 54 is an old army
and I don't think you think so. I think that is pretty good. These are
the men that came out right at the beginning of World War II and
graduated in 1941, 1942, 1943, and got into the regular Army. They
stayed with it, and they are all around 53 to 57 years of age.

Now I ask, is that an old military?, You say the mediana ge now

Senator VIm. I c',tinly d",~i t thi k if ou are loing at a
is going to happen and any of these plans are notgoing od away
with that, then the median age would not go up drastically even if
you were promoting more retehti6n-afer the 20 years.

Mr. NELusO. That is 'the exp' datio~i. a sorry we do't have a
chart that showsthe p rofil, bt tidriefor is
to fill in the lengthof service profile Hitlelit betbween 5aind 10 years,
and then prhaps t6 have more individials. leave at this point'and
hot stay to 20. Then, instead of having everybody leaving at 20,
a certain selected umber of indiidualswould stay for 30 eas ,of

Senator HOJLNGS. Let me not interrupt the rhythm of the pres-
entation, but the other end of the spectrum is what I am thinking
too. Tht is public support for'the military. We are constantl hear-
ng thecriticism that these youngsters, who all get into the service
At 18, 10, and 20 years ofage and go~to collegg. and law school -dn't
actually get into the service. until.after 7 .years of schooling.. They
3940, a 41years ae
QUnde r the life expetancy they will z paid ,iore by their Govern-

"'D", naey .. fA PI B i7
years of educaQtion, This highpTay.lgoig oi iis what I am hearing in

Do vou have any part 6f oupr esentation or sthdv that show thalt
concern? Do you dea ith in aniyway? They jist think tha this
20 years is too short.,
Let me put it aother dy. The itlitar said, "Look, they come
outof school.qand then.they hae -only aboutq.5 or 6 years to determine
whether they are dum-dum.or good." If they are dum-dur, they- al-
stay on 7 mre e e',will retire at 20" ut if .he had
to stay until 30, they,would start getting rid of those lesser Competent
etentin of te intet.t

Mr. NELSON. Part of the DOD planning withrespect to the enlisted
orce is- that after a man is allowed to reenlist the first time, at 4 years
tary until retirement. One reason for this policy i's that a man is cut
off entirely without retirement benefits if he leaves before 20. The
services feel there is an implied obligation to allow a man to stay.

'**;**4 *iss.---..~ ~ *ag: :*~,FI .oiV vans~~~.

HI using retirement reform as a management tool, the mil
servies ca more carefully select individuals they want to keep at
the 10- 12, or 15-year poits. Tis is one way to ue r
costs in the ftuure.

Senator DOMENICI. I whole heartedly agree, Fritz. That is one of
the biggest emotional problems i the country, to have the 38- and
0-year-old on a.good pension coming in and getting a darned good
ob in city hall and starting on another pension.
I know a few people that are working on their third one. They got
out at 38 and they got into another kind that they could vest a pension
and then they took their last number of quarters and got on social
Senator BUCKLEY. That is not just limited to the military, I might

Senator DOMENICI. I agree. Do you have any research which indi-
cates ust a profile of what they are doing in life, the ones that are
retiring early? Do we know anything about what they are doing ?
Mr.' NELS '. There have been some studies done although I do not
have the details at my fingertips. There was a survey done about
10 or 12 years ago that found that for individuals who retire from
the military after 20 years of service, a lower proportion enter the
civilian labor force than other people of that age. Also, those that
work tend to work fewer hours, so they use military retirement to
supplement their lower income from working fewer hours.
I have brought here the details on the two retirement reform pro-
posals, but I will not go into the details unless there is a particular
interest. They are very complex pieces of legislation.

In terms of savings, RMA and IAC really are long-run reforms.
Wee estimate that by the year 2000 the Retirement Modernization Act
will be saving about $800 million per year in retirement costs in
today's dollars. We estimate this to be about 6 percent f .total retire-
ment costs. The earlier Interagency Committee proposal (JAC),
which is a more far-reaching reform, would save about $2.1 billion
per year in retirement costs, or about 17 percent of the total.
Now both plans involve higher costs initially on the order of $100
million per year. The President thus has put $40 million into his
ibudget this year for RMA. The additional cost is -because of very
generous transition features-in order not to penalize severely indi-
viduals with many years of active duty-and also because of payments
to individuals who get out early-some time before savings are

Senator HOLLINGS. What is the cost to the Government by the year
2000 without any change from the present law?


present system will cost about bion a year in ye2000 for
new retirees alone, and thiw down to about $20 billion
under RMA and about $16 billion under IAC. At issue is the question
o f what a dollar will be worth in the- year 2000 versus what, a. dollar

reform, other than something like the kicker, an it w se

SAO is about to issue a report on the contributory retirement,
so we have not done any kind.ofdetailed analysis of the proposal,
but we can point out certain effects it will have.o tntn. It soud
reduce the number of people going to retirement, because an individual
will have to contribute to his retirem t so i will make retirement a
little bit less attractive that way. But it doesn't really do anything
to encourage a man to stay for 10 years or to stay past 20 years. The
benet fo~mula still would encourage a person to retire at 20. In
eect, contributory retirement is only partially in line with the goals
of retirement benefit reform.

One move that would be open to the Congress would be to combine
contributory retirement with RMA or the IAC plan, and this basically
would help accomplish the goals of retirement reform nd a th sa
time reduce the reti eent cos over the next few years. We estimate
a 7-percent contributory retirement would save abot $1.2 billion
th first year and in co ation with either of the other reforms
would still save in excess of $1 billion a year per year over the next
5 years.
Senator CHILEr. What is the 7-percent contributory retirement
going to do towar our getting enlistments and retention and- t
kind- of thing-?
M. NES. That is a difficult question, Senator. It depends in a
lot of ways on exactly what is meant by a 7-percent contributory
If the individu cn i i ntibution when he leaves
ilitary service then for men who would come in an leave after 4
years proposals I have seen, their
money back with interest.

We lookeI at what putting contributory retirement into effect in:

67-428-76--- 4
-.~tSI "C it *_'

conditions would still be favorable for that, but that beyond 1977
the military might require highir pay raises.

Senator Bu uEY. When you spoke earlier about comparability,
was that comparability with all the fringes and so forth taken into
consideration or ust the basic pay?
Mr. NELSON. fhe way we looked at it was not really in terms of
a dollar-for-dollar comparison, but -a question of whether the military

Senator BUCKLEY. And the contribution factor would presumably
be taken into that equation or the lack of contribution factor.
Mr. NELSON. Yes. In summing up the manpower section we pre-
pared a slide that puts together some options for the Budget
Committee to consider.

MA N P OW E R 0 P T 1 0 NS

FY 77 FY 78 FY 79 FY80 Fy 81

5% Pay Cap -- FY 77 & 78
*Military *and.GS -2,200 -3,700 -4,100 -4,400 -4,700
*Wage Board -200 -400 -600 -600 -600

Retirement Modifications
*7T Compulsory Contributory -1,200 -1,2000 -,O -1,100 -1,200
Military Retirement
*Eliminate 1% Kicker -90 -200 -300 -500 -700
*5% Retired Pay Cap in FY 77 & -200 -600 -700 -900 -1,100
78, Eliminate Kicker Beyond
FY 78

Other Compensation Cuts -700 -700 -800 -800 -900

MAXIMUM. SAVINGS -4,400 -6,500 -7,200 -7,800 -8,300


Mr. NELSON. This chart contains the 5-year savings from the cur-
rent policy budget of a number of options, mostly in the compensation
area taken either from the work CBO has done or front proposals in
the President's budget. The first option is a 5-percent py cap for
general schedule and military personnel in fiscal year 1977, which
is approximately what the President has recommended, and a pay
cap in 197T8 as well. But we have included higher pay raises beyond
1978 to help recruiting in the out years as we indicated earlier might
be necessary.

from the President's budget that would require a change in the law.

A second set of optionss lu te rtiremen options. We have
listed our estimate of savings from a 7-percent contributory system.
If retirement reform were enacted in c bination with a contributory
system, savings would be reduced slightly.
The next item under retirement is the 1-peet kicker, yielding
savings of from 90 to $700 million a year. An option even below that is
to place a cap on retired pay rase of 5 percent-equal to the cap on
active duty pay raises. In a number of years in the past retired per-
sonnel have received higher raises than personnel on active duty.
This would save an additional $100 to $400 million over and above
the kicker.
Finally, the President has specified other compensation cuts in re-
serve pay, in bonuses, in reducing the grade mix, and in family hous-
ing that would save from $700 to$900ilio over the next 5 years.
As the bottom line shows, we are talking about maximum savings from
enacting all of these cuts of $44 billin to $8.3 billion by 1981. These
are savings from the curret policy budget, not from the President's
The totals do not represent the sum of the columns because there
terains and overlaps among the different options. We have
en vry careful to try to take account of these.
In addition these are really just compensation cuts. Cuts in person-
ne stre and manpower frm present figes would add to total

Swuld conclude by sying what is obvious really. There are ways
to cut manpower costs-perhap not easy wa and selecting some
ofthe options presented here could possibly change the trend in which
defense manpower cuts r may rs hai e bee rising percentage
of the defense budget.
'Mr. KOEHLER. We would like to go on with Mr. Pirie who can take
you quickly through some of the overall issues raised bythe Presi-
dent's defense budget submission emphasizing the specific problems
for the congressional budget process that this particular budget pro-
pos~~al raises. Then he will briefly describe the options and alternatives
that are offered in te CBO annual rport.
Mr. PiRE. I would like to focus on just a few of the very important
numbers in the President's dget first. Incidentally, I will give you a
little relief from the blizzard of numbers to which my colleagues have
just subjected you.
Slide 1 shows the President's national defese request for fiscal 1977
in budget authority. That is the $114.9 billion number. That is the

olution targetf or function 060.
Senator HOLLINGS. I think everybody ought to catch the difference
between the $112 billion nd the $14 bli verybody generally c-
cepts te $112 billion figure but does this include ERDA?
Mr. PRI. This includes ERDA.
Senator HoL Which is under that 050 category?
Mr. PImlE. Yes. Last year the first concurrent resolution target for
that number was $100.7 billion and the c concurret t
went out at $101 billion.
Let me explain the current policy budget. It is an accounting de-
vice to give us th baseline. It projects he current law in pay and com-
pensation; elsewhere it takes the fiscal 1976 base and adjusts
tion but maintains esntiay tt ing level-real pur-
chasing power. It is essentially a status quo baseline and has virtually
no real growth in it.


FY 1977



Mr. PIIE. The apparent real growth, therefore, from 1976 to 1977
in the President's budget is shown there at $3.9 billion. I say apparent
real growth. We said that the current policy budget proects
raises in accordance with current law. Now the Presidents budget
has a pay cap but there is no pay cap in this curret policy bud
To get a feeling for what the real growth inthe President's bud
is and where it is. we have adjusted the current policy budget to re-
fleet the pay cap. The next slide shows this.

"* ** .i -. **** **~

1 1.:! .+ f i m T . r i c (|^ f h?l; : *, f = i ri ,: *. *

Mr. PuRE. That is what the, $107.6 billion figure is. It shows that
the real growth for fiscal 1976 to 1977 in the President's budget is
$7.3 billion, which by happy coincidence is exactly the figure that the
President states in his budget submission to be the real growth in
this function.




I 10 II



Mr. PIRIE. There is an actual real hinge in pay for military
personnel. There is substantial real growth in procurement and op-
erations and maintenance, ra nd evelpment. The big incr
is i procurement. It is important to note that procurement account
tends to spend out ore slowly than anthing else there, only about
15 percent of budget authority for procurement is spent in the first
Moving to outlays, this slide presents the same discussion we just
had about budget authority in terms of outlays, and as you can see here
against the current policy budget the President's budget represents
an apparent real decline of $2.3 billion. However, adjusting the cur-
rent policy budget for the pay caps shows that we have a real growth
in. the President's budget of just about $1 billion-in fiscal 1977 over
fiscal 1976. .


FY 1977




FY 1977-



Mr. PIRIE. Slide 5 shows the breakdown of this real growth in out-
lays. Once again, procurement is the big winner.









Mr. PrMrE. The "other" category here, since it is so big, I had better
say what is in it. Military sale is about minus $1 billion, stock-fund
sales is about minus $800 million, and military construction is down
$400 million, retire pay is up $400 million so they essentially cancel
Next I have some -year projections comparing the President's
budget to the unadjusted current policy budget.


FY 1977 FY 1978' FY 1979 FY 1980 FY 1981

FY 1977 FY 1978 FY 179 FY 1980 FY
jj *i *. '.' 1,4 '* i rI

PRESIDENT'S BUDGET 101.1 112.9 121.5 132. 142.
CURRENT POLICY BUDGET 103.4 114 5 118.0 127. 2 135.6
-, I' '

Mr. PIRIE. As you-ansee, the President is higher in budget author-
ity throughout the period. ie starts below the current policy budget
in outlays in fiscal 1977 ad 18 then cros over and winds
up substantially above. The President's growth in outlays is 10.3 pr-
cent per year during this p whereas the current policy budget
growth is 7.8 percent a year.
Slide 7 introduces a point that Mr. as is o -
what and that is that the President's budget is yer is to be
very difficult to deal with in the budget process primarily because of
the large number of policy changes and the actul lgislan it




1440 2636
Mr. PIRIE. Now these numbers in millions of dollars are savings that
the President presumes will be made because either Congress changes
the law or because it goes along with some Presidential proposals hav-
ing to do with pay caps and reductions of military construction and
family housing. Stockpile sales require a change in the law and if
those sale.are not madthee e is $746million that will essentlly have
to be added to the budget.
It is the same with the wage board pay increases, the retired kicker
which Mr. Hale has already addressed, and the commissary surcharge.
At the bottom is the matter of the pay caps. The smaller number refers
to the 6.3 percent comparability pay raise and the large number refers
to the about 11.5 percent pay raise.

As you can see, this committe is going thavemake alot of assup-
'tions about whatCongress going to doabout these numbers in order
to arrive at that taet. As history reflects, theassmptions area fertile

Senator HOLLINGS. Go right ahead nd talk about that.

Senator DOMENICI. Could we ask on that stockpile, what has to be
changed about the law on the stockpile sales?
Mr. PIRIE. I am really notn expert on that subject, but there is an
authorization required. The President already has authorization to sell
a bout $124 million worth of the stock that has.been stockpiled and he
is asking for this much further authority.
Senator DOME NIC. Do you know how much we have now in
stockpile ?
Mr. KOELER. We have very large quantities on tock of some com-
modities. For example our tin stockpile, the last time I looked at the
data, was equal to 3 yrs of U.S. consumption and 1 year of world
consumption. We have a very large copper stockpile, we have stock-
piles of a number of other different commodities. One reason it is so
tangled, is because a number of interests are involved in decisions to
deess the market prices for these commodities s we l from the
So it is a particularly tangled and complicated issue, but we do
avvey large stocks of a numer f thse commodities. .
Senator HoIN c et's have Andrew Hamilton of our own staff

Mr. HAN.HAI Senator, the studies thati have been done on the
stockpile situation the last 4 or 5 years have identified some $6
bilion plus, that was in 1974 prices, I believe, of materials in the stock-
piles. The Nixon administration determined tht all but about slightly
more than a billion dollars worth of that was excess to requirements.
The stockpiles were generated in the 1950's and based on long war
planning assumptions. The legislation to grant the President authority
to Teduce the objectives for the stockpiles was submitted 2 years ago
and the Senate House Armed Services Committee has jurisdiction and
th did not act on it.
ubsequentlyduring the past year the White House and the- a gencies
involved in managing the stockpile have developed a new set of stock-
pile criteria and 4 is'my understanding that the President intends to

dent will request legislation to ispose of these items over time. This
$750 million in receipts listed in the budget as contingent on new
disposal authority would be the first-year slice of that. It is not an
easy subject. There are a number of pros and cons on the question, not
only should you dispose of the stockpile materials but how should you
dispose of them..

bought it with defense money ?
Mr. HAMILTON. At one point e spent tioal deens mne
acquire tbese materials. They have since appreciated in value an the
way this budget was set up in effect t P idnwn
portion of the national defense budg thrugh tee sl.
Chairman MUSKIE. Like oilleases where you spend money you have
not got.
Mr. PIRTE. Having provided a temporary respite from a blizzard of
numbers, I am afraid there is now one coming up.

In this section, I would like to present the broad structure of the
options which the CBO annual report addresses, without taking up
the rationale for the options or the cierteia for choosing either the par-
ticular options or between them. Those things are all covered in the
annual report.
I just want to make use of the time available to give you a notion
of what options are considered and their budgetary impacts.

In talking about the Navy, the annual report talks in terms of a big-
ger Navy, a smaller one, and one about the same size as today's Navy.
It shows 00, 400, and 500 ships for that purpose. Because of the very
long leadtimes, expansion to 600 ships cannot be achieved in any rea-
sonable program until near the end of the 1980's. Similarly, unless
one wishes to retire ships early or to stop building ships altogether,
the Navy would shrink to 400 ships only in a similar period of time,
by the end of the 1980's. Five hundred ships is about what we havegot
As a prolog, slide 1 shows some recent history.
FY 68 FY 69 FY70 FY71 FY 72 FY 73 FY 74 FY 75 FY 76 FY 68-76
Ships Procured 7 5 10 15 15 8 14 22 15 12.3

Cost (FY 76$) 2.0 1.7 3.9 3.5 4.5 4.1 4.6 3.4 3.9 3.5
Mr. PIRIE. The 12.3 ship-per-year average building rate shown here
is not enough to sustain even a 400-ship Navy in the long run. This
slide is not the whole story. There is a present backlog of about 90
ships that are funded and not yet delivered. About the same number
of ships in the fleet will become overage in the next 5 years. So we
ought to stay about where we are over that period of time.

The problem is i the longer ru. What does it take just in ship-
building budgets, just shipbuildin budgets alone to sustain Navies
of the different sizes? Inidentally, before leave this slide, part of
the eplanation for the smral number of ships and the larger number
of dollars is this includes the Poeido conversion program at about
$500 million a year. That is not taken out.
M E id some point I would like to get
into the foreign policy rationale behind any one of those numbers,
400, 500, 600. It is more than a numbers exercise, I assume. It is based
upon somebody's notion.
Senator CmnAs. Is there any relationship at all with the report we
now see that has just come out that was done by the Congressional
Research Service or the Library of Congress in regard .to U.S. versus
the Russians in ships? .
Chairman MUSKIE. Are you prepared, to go into that at this point
Mr PIE. It is an extreely complicated problem and I think, one,
.you have a gyreat deal of testimony on the record fromn the Navy, for
x pe, that 600 ships is about te miimu which would prmit us
to hold the eastern Mediterranean if tiat is deemed to be an objective.
If it is eemed to be an objective to sustain lines of communications
acrs the Atlantic in a long European war, things of that kind, that
woud indicate choice of a larger Navy.
Choices between 400 to 500 and 600 point, I think, more to the degree
of risk to be taken than to any specific hange in overall U.S. foreign
Chairman MUSKI. uld I askyou this, yowere asked to consider
numbers relative to he Soviet numbers. Has anybody made an anal-
ysis from the Soviet security? What their ationale for whatever
numbers they have, whatever numbers they are shooting for? How do
their numbers impact upon our perception of what numbers we need
We need that kind of discussion ,and -analysis it seems to me.
hold we try to program a seaate discussion to get ito those
Dr. RIWvN. I think we probably should. That would be a useful dis-
cussion. But I think we are not really prepared to do that this morn-
ing. We were planning just to run through what the dollar magnitude
of the varios options are. But I think another session on that would
You ar up this team, please, Alice, and tell us
when you are ready. It would be useful as we really are assimilating
for the first time all these manpower costs plus the actual policy be-
theeeded and whee we are heading
Please go ahead and explain it to our panel.

iMr. PIRE. I would like to talk about shipbuilding budgets to achieve
navies of the 400- 500-, and 600-ship size..

+ + + ~+++~ill +lllll/liri ++: ++ +. .;;: l + .;i i ,: a I +
+ +a + +++++++

(Average Cost, FY 77-81)
(FY 76 $ Billion)
Major Escorts Major Escorts
Partiai lly Nuclear All Nuclear

400 Ship Z. 2. 2

500 Ship 44. ; 8s

600 Ship 7. 6 8. .

Mr. PME. The next slide shows the average costs-
ChairmanMUSK. Are these three numbers you have picked
Mr. P The 400, 500, 600 ships? Yes. Six hundred is the Navy's
preferred number, 500 is what we have now and about 400 is where we
are headed at the end of the 1980's at current building rates.
Senator HOLLINGS. Has the Navy come off of that 600-ship figure
down to 550?
Mr. PnE. My information is that the Secretary of Defense has in-
vited the Navy to present the rationale for the larger Navy shortly.
Senator HOLLINGS. For the 550 or the 600?
Mr. P E For a larger Navy.
Chairman MUSKE. So we do not have that rationale yet?
Mr. Pn E. We do not have that yet.

These are the average annual costs in the next 5 years in constant
fiscal 1976 dollars, billions of dollars, that it would take to achive
navies of those target sizes. This slide also introduces a new policy
variable: whether all or only part of the major escort vessels in these
programs should be nuclear powered. As you know title VIII to the
Defense Appropriations Authorization Act of 1975 declared in favor
of nuclear power for all major combatant vessels, prohibiting even a
Presidential request for conventional power for such vessels unless ac-
companied by a finding that in, a particular case it was not in the na-
tional interes to have the vessel nuclear powered.
Chairman MUKI. By major escort, what is that?
Mr. PIRIE. The cruisers and frigates and air defense.hips that
accompany carrier task forces.
There does not seem to be much question that among major com-
batant vessels the submarines and aircraft carriers will be nuclear.
The question revolves around the ease of these major esort ships we
are talking about. The Navy appears to want a progr which has a
one-third, two-thirds mix of nuclear, nonnuclear major escort ships:
one-third nuclear, two-thirds nonnuclear. That is the partial nuclear
mix that is in the left-hand column there.

The mix in the right-handmaes all of those escort ships

or are they talking about nuclear horses and near ra

The next slide shows represe'tative shipbuilding budgets for fiscal

($ Million, Curremnt Year BA)

FY 77 FY 78 FY 79 FY 80 n .FY 81

400 Ships 2215 2542 2408 2600 2858
(Title V I 1) (1354) (4 256) (44 5) (4396) (43751

501 Ships 4554 '4885 4985 5276 5629
(Title Vi II) (3740) (7114) (7279) (7549) (8129)

600 Ships 6672 8577 8930 9568 1,77
(Tit e V I 11) (5656) (10, 409) (O, 7700) (11,5356) (11.8609)

(President's FY 77 Budget and DoD Projections)
($ Million Current Year Budget Authority)

FY 77 F 78 F 79 Y 8 Y
President's Proposal 6290* -

oD Program 5786 6471 7414 9427

Contains $1623 million to fund cost growth in prior year' programs.

Mr. Kounum. Current year dollars of budget authority.
Dr. R I think what that really says is o any size na there
is a lot of money riding on whether title V111 is fully implemented or

;Senator Caus. When did we pass title VIII?

M~fr. KOE R. The Appropriation *;s Act of 1975.

p U


Mr. PIRIE. No, sir, title VIII is all nuclear. It requires that all of
these major escort ships-
Chairman MusKrE. How would those numbers change if you had the
partial nuclear?
Mr. KOEHLER. The partial nuclear numbers are the top line in each
of the rows, and the full nuclear the bottom, the ones in parenthesis.
Senator HLLING. What am I reading there on the first one?
Mr. PIRIE. For a 400-ship Navy in fiscal 1977 the budget would be
$2.2 billion, and if you went title VIII, that is if all the new ships to
be bought in this major esort category were nuclear ships the bill
would be $1.3 billion. That is smaller and the reason it is smaller is that
you cannot procure the nuclear ships as fast because you need to pro-
duce the long leadtime items first.
Senator HOLLINGS. Then you get to 1981 for the same figure and
it is $2.8 billion but all nuclear would be $4.3 billion ?
Mr. PIRIE. Yes, sir.
Senator HOLLINGS. I have that.
Chairman MusKIE. For the 600 ships there is a gap in the partial
that seems much smaller. Why ?
Mr. PRmlE. Essentially because what you are building for the 400
ships is just the nuclear ships.
Chairman MUSKIE. So'if the gap is even less than the gap for 400
ships----- .
Senator HOLLINGS. The gap for the 400 ships is a couple of billion
dollars---$2.5 billion-but it is only a billion less-less than a billion
on the ,00..
Mr. PRIE. Primarily because of the fact you cannot start building
them so fast.
Mr. KOEIHLER. If you are building to a 600-ship Navy you are build-
ing a lot of nonnuclear types as well as nuclear types early in the pro-
gram so the nuclear bill does not come in as early in the program as
for the 400-ship program.
Chairman MUsK&E. The bill should have come in least 1981.
Should the gap be that much ? I am puzzled by that.
Mr. KOEHLER. Underlying these slides is a set of force tables and the
building program that fills out the tables. That is just an artifact of
the way the tables are constructed. The balance of ships in the 600-ship
Navy also reflects the Navy's preferences which make that size fleet
relatively heavier in aircraft carriers.
Chairman MUSKIE. Underlying these figuresisi your early basic as-
sumption that you would not get down to 400 until the late 1980's and
you would not get up to 600 in the late 1980's but you maintain the
500 constantly through this whole period
Mr. KOEHLER. That is right, since you do not get any deliveries for
this period.
Senator HOLLINGS. Do you have a chart comparing these projections
with the President's plans and budgets? I get the 400, I get the 500
I get the 600, but can you give me the present, which is 500, compared
to the President's proposal in his present budget ?

Mr. P=.E I do not have that with me, but I can supply it.
Senator HIo S.Will you put that in the record immediately be-
Mr. Pnuu. Surely.r
Inthe ground force options we chose to look at the Army's ean-
si from 13 diviss to 16 diisions.
etor I. Before o tha d I ask, do I nder-
stand we are going to try to have another briefing on the 400, 500, 600?
Chairman MusKIE. In terms of foreign policy, including, of course,
an analysis of the Soviet assumptions, and what we know of their
pr oj ections.
Senator Cnurrs. Could you relate to this congressional study that
just came out that says we are eurrently behind ?

Senator HoIwIsG. Yes. The Budget Committee has former Secre-
tary Schlesinger and Secretary Rumsfeld scheduled March 9. I was
trying to get some of this for background. They would more or less
touch onpolicybut I think it is going to be very helpful to us all if
we not only, ice, yet ou and your people, but some other experts,
with respect to the policy questions.
Chairman M.So we can ask intelligentquestions.
Senator HOLLINGs. If you could put that on a crash basis maybe
next week or just before they come, you can suggest the pros and cons
with respect to polcy. We could get a better dialog going. I can take
this document we are producing here today and study it over the week-
en thinkit is a superb presentation-ad finally fix manpower in
my mind for a change. It has been jambalaya until now but now you
are making sense out of a lot of these gs. If you do it similarly
with policy it would be a big help.
Dr. RI. We can try that and certainly give you an idea of what
the questions are and the things you should be asking the administra-
tion. It is obviousy re ompiaed aea it cannot be laid
out as easily.
Chairman MUSKIE. I would assume that the manpower projections
ot crank nto te different a ptons you have to make aboiu
naval ma npowe depending on te 400, 50, 00 number.
Mr. PuRE. In this case since you do not get the ships, Senator, until
the mid-1980's, these ships are not delivered until the end of the period
which the manpower peoplehave already addressed.
Chairman MuSKIE. You will have some new ships come in before
M PuE. Yes, sir, but you have some going out.
rmaM KIE. So you are just perceiving -a steady 500
Mr. P=E. Yes.
Senator DOMNICI. Maybe this word is considered in the forein
p as su t, because I think te Sovie use their military for
f policy, but if we can get the threats we are addressing I think
1 See pp. 32, 33.

that makei s to us ha isthe th t th is pres e t

ges, and that means a little diferent to me than our notion of foreign
policy. I think maybe that is what we are ire
zassume we. are building for, and, -I use the word,what is the presumed

Senator D EN thinkfrom their standpoint we are assuing
something, and needs is all righti i t really means we are basing
against some presumed activity ion their part. We have the option to
assume we need to meet that threat.
Chairman MUSKIE. A threat assumes intention on the oth
and a need is a little broader t han that.
Senator DOMENICI. That is- all right if it includes the word needs.
Chairman MUSKIE We ddo not have a specia inention but we have
to be prepared to meet some rational evaluation of the needs posed by
their posture.
Dr. R i. I think we can addre some of those questions butin the
end the objective, I think, is for the committee to formule e
questions to put to Mr. Runsfeld and others abou what they are
assuming. We probably cannot supply you with their answers.
Senator HOLLINGS. You talk to them at rokings and come thr
with a balanced judgment for us.
Dr. Riv1JN. Is that your only assignment for this week, sir>
Mr. PIIE. In the ground forces options we choose to look at the
Army's proposed expansion from 13 divisions to 16 divisions. The ex-
pansion to 16 divisions involves procurement and construction costs
of about $1.9 billion over the next 5 years.
We would also require some substantia drawdowns of support
echelons. In order to clarify the decision about 16 versus 13 divisions,
it was decided to adjust total Army manning so that the 16 and the 13
division forces would be supported on thmes basis.
This resulted in adding about 105,000 people to the Army to support
16 division forces, and substracting about 37,000 no needed for the
13-division force. The resultant budget impacts are shown in slide 4
and these are pluses and minuses to the President's budget and ac-
companying projections.
($ Million, Current Year BA)

FY 77 FY 78 FY 79 FY 80 FY 81

13 Divisions -300 2 -910 -936

16 Divisions *+ 0 +7 +1148 146
Senator HOLLaING. Read that for us. You say they are "plus or
Mr. PIRIE. If it is chosen to select the 13-division option, $300 million
can be saved from the President's budget request in fiscal 1977. If it

chosen to select the 16-division option, $300 million should be added
to the President's budget request.
Chairm-ran Metim. Does that mean the President has come down for
a 16-division option
Mr. PnuE. The President has come down for a 16-division option,
but the support slice for the 16 divisions is reduced in taking the

more slowly ?
Mr. P*TE I am not privy to the motives in this case.

the division flag.
ChairmanE. Is it clear from the budget that he has not given
fu uport to the 16division concept or is that fudged
Mr. P I is ve dict to mae that dation. the

Mr. PuE. Over $2 billion between the low and the high.
Senator CiLEs. One is a plus and one is a minus.
SSenatr HO. is r iit is goodm t h these things read.

.pirmarily the force eansion receny r sed by the amini

the 22 tactical air wing Air Force, reduce Navy carrier air wings to
10, go along with the number of carrier decks in the low Navy option,
and reduce Marine Corps aviaton by one squadron.
The high option chosen allows 26 fully modernized USAF tactical
air wings, 13 Navy air wings and retains 25 USMC Air Squadrons,
an the difference et this option and the Psi t's
-shown in this slide.

($ Million, Curient Year BA)
FY .7 FY 78 FY 79 FY 80 FPY 8

22 USAF Wings
LOW 10 USN Wings -C1300 -2100 2141 2543 -996
24 USMC Sqdns,

26 USAF Wings

25 USNC Sqdns.r
Chairm-n W SKI That goes to a billion and a half. Why is it
hiher in 1980 Wi

Mr. Pinr. It relates to the procurement schedule that is required to
fill out the different forces there.j i il
AMr. KOEHLER. We-fill these out with a target date of 1981.

Senator HOL LINs. Let me ask.right here, for the Army divisions,
when you project that 16-divisidoes that assume the three
new divisions will be infantry or mec i iz d
Mr. PIRIE. One would be mechanized and two inaty o otave
in here the administration's proposed futuire changeof two 4divis
to armored divisions. .
Senator HoLLIGS. We can insert that question and response prior
to the section on the tactical Air Force options.
Go ahead.
Senator CHILES. You probably ought to get us a schedule that shows
us the President's proposal for rmor, because we need to compare
against the President's proposal.
Mr. PIRIE. We can do that.
[The following was subsequently supplied for the record:]
The information provided in the Annual Defense Department e Report, fical
year 1977, is not specific enough to derive a detailed schedule. The report is
quoted to indicate the DOD plan as follows:
".. higher tactical mobility and firepower make heavy (armored or mecha-
nlizedl) divisions a better match for those Warsaw Pact forces and Sviet-equipped
forces that we might face in many contingencies. Therefore, as funds and equip-
ment availability permit,. the intent is to convert two ative army infantry d-
sions into heavy divisions.
'The Army is currently analyzing the cost!implications of -these conversions, but
initial procurement of equipment for. these changes will not begin earlier than
fiscal year 1978."

in the Air Force ?
Mr. PIRIE. Between last year's presentation and this year's presenta-
tion the Air Force shows that it has gone from 22 to 26 air wings, but
the number of aircraft has only increased by a very small number like
three or four.
Senator DOMENICI. How about the Navy ?
Senator HOLLINGS. How about the Navy and the Marine Corps?
Mr. PIRIE. In the Navy I believe we have 12 Navy carrier air wings
to correspond with the projected 12 air carrier force, although I under-
stand that a request is pending to increase the Navy carrier air wings
to 13. We have 25 Marine Corps squadrons now.

Chairman MuSKIE. Is the high option advocated by the administra-
tion again?
Mr. PRIIE. The high option is higher than the President's budget.
Chairman MUSKIE. Where does the high option come from ? --
Mr. PIRIE. The high option is one we put -together which added a
carrier air wing and some different aircraft in the Air Force.

Mr. KOEHLER. It does not lie far above .tlh President's request.
Chairman M s Why did you Make it?
Senator HoLINGs. Why did you dteu. n that i sWhat was the
Chairman MUSKIE. They don't ned iny encouragement.
Dr. Rm That is not a universa iew, Senator,

Mre bKolsi Essentially, as awe interpreted it, our role was to
present alternatives that would be of erst t people who might
want more than the President wanted as well as poplewho might want

Dr. RivLiN. I think as you bring the budget that will be clearer. Why
don't you move on?

Mr. PniE. In strategic forees we looked at two- variants, both con-
sistent with the Vladivostok accord& The lower option does not buy

S1975 Bas ne 1980s 1980S iligh 19

-52 (C-F)
1-52 (G/IH 272 266 266 266
F. -11 7 1 70 70 .. 70
E5 ,'2 44 244
-. r ise. i ssile (800) (1,000)

4 4 41,054 1,054 1,00 1 054
tan I 54 54 -. 4
1 4500 450 45 40
8inu--Man 111 550 550 I 550 400

FSLm 765561 7065 736

on Trident S-ST 240/10 240/10 244010
Trident I SLI BIM

on Poseidon SS8N 4931* 256116 256/16 336/21
Polaris A-3 SLBI
on Polaris SSBNIt 160 10

*umber of Missiles/Nunter of Submarines

|i. "' i s . .,

Senator HorNs. Just track through it for us and we can get the
rhyth of exctly what it says.

Mr. PIRE. Going down to the mid-1980's, a total of 1,992 launchers

FB-111's. These would be supplied with 800 air launch cruise missiles.
The ICBM force would consist of 1,000 CBM's 450 Minuteman
IPI's, and 550 Minutman 's. The ballistic missile submarine force
would have 656 launchers, of t on 10Tri t submarines,
Trident launchers on 10 Poseidon-converted submarines, and 256
launchers for Poseidon C-3 missiles on 16 Peidon submarines.
Chairman MUKIE. The only growth is in the Poseidon and where
Mr. PniE. Between the lower and the higher alternative growth is in
the bomber force and in retaining more of the Poseidon and the Titan
Chairman MUSrIE. The B-1 applies to additional refueling planes,
does it not?
Mr. PuE. It is not clear what the tanker suppt for the B-1 is sup-
posed to be. We have accepted that at least in the time period we are
talking about there would be no requirements to increase the tanker
Senator HoLuIGs. They are not requesting additional refueling
Mr. KOEIHLER. NO, sir, they are not. There is a program underway,
the Advanced Tanker-Cargo Aircraft, which is not linked explicitly
in the request to the strategic forces. This could serve to refuel the B-1
force in the 1980's. However, the Department of Defense has not in the
budget request said that it is for the B-1.

Mr. PiRTE. The cruise missiles don't add to the number of launers.
That is an assumption that there will not be a SALT limitation on
the cruise missiles.
Chairman MUSKIE. If there are no SALT agreements, these are the
numbers we will anticipate ?
Mr. Prnr. These are two options that could be implemented if there
is no change in the present status of the SALT agreements.
Chairman MUSKIE. I think Secretary Kissinger used a $20 billion
figure on additional costs in the strategic forces if there are not SALT
Mr. PIRIE. We don't know how he got that number.
Chairman MusrKE. Was it a PR number or based upon somebody's
Mr. KOEHLER. It was not based upon our analysis.
Senator HOLLINGS. But you looked into it, didn't you?
Mr. PnRm. We have not completed calculating a SALT breakdown
alternative. We hope to address one in a backup paper for the annual
report coming out later on this year.

Sen'at"" or"" Ho 'Allrightlet'mveal

tive ad that is the procurement by the mid-1980's of
ICBM'sthenew X, which would replace an equal nuber of
Minuteman I1I's.
Senator O s. So what is the cost?
Mr. PAuE. They are on the next slide, sir.

$ Million, Current Year A)
4 1 3' t11 : i y ii
FY -77 FY 78 FY 79 FY 80 FY 81

Lower Alternative -156 -2007 -2828 -3102 -3214

Higher Alternative +10 +265 + ,105 +1685 +2315

Mr. PuE. These are the ated costs lwer and igher
strategic alternatives and once again these are differences from the
President's budget and the projections.
Senator Moss. Could we have the President's budget figure Your
charts show two sets of figures; those higher and lower than his request.

Mr. PHnE. His request in absolute terms; we can supply that.
Senator Moss. It would help us clarifyt the picture and a
the relationship of all the numbers and their significance.
[The following was subsequentlyupplied for the record:]
(President's FY 77 Budget and DoD Projections)
($ Billion Current Year Budget Authority)

FY 77 FY 78 FY 79 FY 80 FY 81

President's Budget 9.4

DoD Program*- 10.2 10.4 10.7 11.0
Determined by taking 9' of DoD projected TOA. The 9' is described by DoD
spokesmen as the average annual proportion of the DoD budget going to
strategic programs.
Chairman MUsKiE. What is the ag ate of these higher alterna-

Mr. KOEHLER. We have that in the next part of the discussion.
Senator DOMNICI. Is your higher here the same thing that you said
last time, you just picked a higher one
.Mr. PuE. With perhaps some inkling of what might be requested
in tlhe future budget .
Mr. KoEHLER.WOe tried to piut together, Senator, a package that
seemed to coherently reflect a set of views on what the appropriate
strategic forces were. It turns out those are fairly par t
what we think will be requested.
Chairman MUsxE. These lower and higher alternatives re not
found in the President's budget?
Mr. KoEHaLER. No, sir.
Mr. PaEI. Nosir.. .
Dr. RivLIN. All we are trying to do here, really, and maybe we have
not given you this as clearly as we should have, is to simply give you
an idea of the range of ups and downs that seemed reasonable to discuss
in these various major forces-Navy, ground, strategic.
Chairman MtSKIE. I think it is very helpful. I think the basic idea
of this analysis is very helpful.
Senator HOLING. Very much so. Go right ahead.
Mr. Pni. Finally, in defense research and development we consid-
ered plus and minus 10 percent excursions from the present lvel of
For presentational purposes we combined all of the low options into
a single low and all the high options into a single high, although we
recognize that for many reasons one might not want to choose all of
either set.



(in billions of dollars, cuxent year budget authority)

400 Ships -2.5 3.2' -4.1 -4.8 -6.6
3 Divisions .8 -.9 -.9 -.9
22 Tactical Air Wings -1.3 -2.1 -2.1 -2.7 -1.0
Lo Strategic Option -.6 2.0 -2.8 -3.1 -3.3
Lo Manpower Option .3 -1.3 .5 -- +1.0
-1o0 R&D -1.7 -1.9 -2.0 -2.0 -2.0
STOTAL -7.7 -11.3 -12.4 -13.5 -12.8

-(Increasing Forces)
600 Ships +2.2 +2.8 +2.5 +2.2 + .7
16 Divisions + .3 + .8 +1.1 +1.4 +1.5
26 Tactical Air Wings + .1 + .3 + .5 + .5
ir Strategie Option + .2 + .3 +1.1 +1.7 +2.3
Hi Map-wer Option +4.-4 ,4.5 +6.9 48.2 +9.7
+10% R&D + .3 + .3 + .4 + .4 + .5
TOTAL +7.4- +8.8- +12.3 +14.4 +15.2

Cost plicatio are shown reative to the President's FT 1977 Budget and accompanying projections.


Senator HOLLNGS. That is hard to see.
Mr. PuuE. This slide shows an option, option A, which aggregates all
of tie lower options we have been talking about so far, and option B,
which aggregates all of the higher options. This is in budget authority,
nt et authority, in these given years, and the numbers:
e in billi s of dllars and the represent differences from the Presi-
dent's budget and from the projectidls that he has supplied us.


p,"a~ ~.

So the total for the first optio uld be $7.7 biion less than the
President's fiscal 1977 budget, in 19a78$11.3 billion less, in 1979 $12.4
billion less, in 1980, $1 bill less and 11 $12.8 billion.
Similarly in the high option, in fal 1977 it wod be $7.4 billion
more, and in 1978 $8.8 billion more, and in 1979 $12.3 billion more, and
in 1980 $14.5 billion more, and in 1981 $15.2 billion more. This is in
budget authority.
Senator HOLLINGs. All right, let's move along.
MrE PIRIE We have one in outlays. It shows roughly the s e
(in billions of dollars, current year outlays)

FY 77 FY 78 FY 79 Fy o, FY 81
(Declining Forces)
400 Ships .2 -1.0 -1.6 -2.5 -3.3
13 Divisions -- .6 .7' -.
22 Tactical Air Wings .4 -1.3 -2.0 -2.7 -3.1
La Strategic Option .2 -1.0 -1.9 -2.5 -3.0
Lo Manpower Option .3 -1.3 --- +1.0
-10% R&D -1.7 -1.9 -2.0 -2.0 -2.0
TOTAL -2.8 -7.1 -8.7 -10.5 -11.1

(Increasing Forces)
600 Ships + .2 + .8 4-1.2 +1.5
16 Divisions + .3 + .7 +1.1 +1.4 +1.5
26 Tactical Air Wings + .1 + .2 + .4
Hi Strategic Option + .1 + .3 + .8 +1.4
Hii Manpower Option 44.4 44.5 +6.9 +8.2 +9.7
+10% R&D + .3 + .3 + + .4 .5
TOTAL 4+5.0 45.8 +9.6 +12.2 +15-

Cost implications are shown relating to the President's FY 1977 Budget and accompanying projections.

Dr. RIVWL I am not sure it shows roughly the same picture. It
shows the difference in outlays he first year, no matter what you do,
is not nearly as large in savings if you take the low options, really
occur later. They don't occur in 1977.
Senator CRANSTON. Could I ask a couple of questions?
Senator HOLLINGS. Surely.
Senator CRANSTON. The low option, as I understand it, represents
about a 2-percent real growth in budget authority in fiscal 1977, and
then results in savings of about 8 percent in budget authority by 1981,
so your position in this low option is there is no way to turn it around
this year in the low option you have presented ?
Senator DOMENICI. Turn it around ?
Senator CRANSTON. From growth to something other than growth.
Mr. KOEHLER. Perhaps that will become clearer on the next set of
slides, which lay out the current policy budget and the President's
budget and the alternatives.


Senator CRANSTON. Wouldn't you agree that there are reasonable
alternatives both in foreign policy and in defense posture that could

lead to greater savings, partiin the outyears, which could be
presented in an even lower option an the one you have presented as
a low option ?
Mr. KOEHLII R. sir,' lere is d oiht ^e are such changes.
Senator Ce N O Could You i a few e nples of such steps
Mr. KOELER. We don't have ith us details of any of such. But
options that have been discussed in the past include, for example,
running down the forces in Europe, running down the forces in Asia.
One ca~ think about moving from strategic forces similar to the pres-
ent ones, down to a minimum deterrence strategy, and so forth.
All of these do have implications that are farther from the Presi-
dent's baseline than the options here in the summary.
Dr. RIviu. They do all have the characteristic, t, tug, that the
savings would be mainly concentrated in the future years and not in
outlays in 19 i.
Senator IHoLNs. Let me gt nto th dgetauthority nd the
real growth in procurement.
As I remember, the President requested $6.7 billion imediately in
growthi procument. Nw tat is not a minimal. That i for the
nex fiscal year that we are going to be approving and disapproving.
How is that reflected in the way he structured his budget in relation
to option A and option B ?
That is hat I am trying to fix in my ind. Are we saying really
that things are minimal, minimal, miimal. But when I look at the
budet right i procurement o it is $.7 b te
Mr. PIRIE. Put the budget authority back on See our low option
takes about $7.5 billion of budget authority out.
f^^a)ntsn ,na l. i l*S
Senator HLLINGS. Wnat you are sying is that the President brings
that right on back up. That is about at we had in real growth- .5
billion or something near that ,
Mr. KoEHLER. Yes,.3 in real growth.
Chairman MUsKIE. But he doesn't go on to option B.
r s 2ah n s is l- r'
Mr. P E. These areas that we selected are not completely exclusive.
This is not all of the defense budget by any means. There is a large
g w e resident has propoed
changes as well which we did not address. We wished to highlight
a few specific anda, we feel, very important issues in the defense budget.
uSenator HOLLNS. But that $7.5 billion involves the PJresident's
Air. PRIE. Yes, the President's budget. I have a couple of slides
which follow, which I think will clarify that. Put on the budget au-

the current policy path; second, the CBO option A; third, CBO option

( bilio of dollar, budget authority)
TY 75 Transition
CURRENT POLICY 92.8 101.0 24.3 111.0 118.3 125.3 132.3 139.5
(Path B)

OPTION A 107.2 111.1 119.5 128.1 138.7
(Declining Forces)

OPTION B 122..3 131.2 14 4.2 1. .0 166.7
(Increasing Forces)

OPTION C 114.9 122.4 131.9 141.6 151.5
(President's Budget)
Chairman MusKIE. What is that number?
Mr. KOEHLER. 114.9 for that function.
Senator DOMENici. And B is 123
Mr. PIME. Yes.
Dr. RIV.LI. Why don't you read those down the 1977 column.
Mr. PIRIE. The fiscal 1977 current policy budget is $111 billion,
CBO option A is $107.2-that is well below the current policy budget.
CBO option B is $122.3, well above; and the President's budget is
Chairman MuSKIE. That option B is the aggregate of all the high
options. Does that represent anybody's policy or proposed policy?
Mr. PI.E, Part of it might represent
Chaiman MUSKxE. You could pick individuals who would be for
a high option, whatever the number, but this does not represent any-
one's formally proposed options?
Mr. PIIE. No, sir.
Dr. RIVLN. That is also true of the low option. These are just
People in favor of high spending would probably be in favor of
many of the elements in the high option. Those who feel the Defense
budget can be cut back might pick some of the low options or all
of them or indeed, as Senator Cranston has suggested, some even
lower ones, and these are just illustrative options from that set.
Chairman MuSKIE. And what they require in way of
implementation ?
Dr. RIYviv And what they require.
Senator DOMENICI. Might I ask, I understand that you are really
required to present options under the Budget Act, and that is what
you are doing here?
Dr. RIwN. That's right.
Senator DoMENII. They need not be anyone's, they are options and
they are defined as options and you are trying to tell uswhat these
options entail in terms of what we will get and what they wil cost
in terms of outlay and authority over the 5-year period
Dr. RIvmN. Yes.
Senator HOLINGS. We haven't heard from the Armed Services
Committee of either House of Congress; neither has Admiral Rick-
over submitted his budget. [Laughter.]

enator. wou like to spely ask what could be
in a loweroptin be preeed to us by you. As an example, wh
would be the force structu required if wwe e going to focus on
ldefending the Americas and Western Europe, the Mediterranean and
Israel and Japan, and extricate ourselves to some degree as we can do
so from Southeast Asia and troop commitments there ?
Mr. PRIE. That is an extremely cmplicated technical question.
Senator C:ASToN. That is why I suggested you help us on it.
Senator How'NGs. We have asked and there has been a consensus
with the chairman and the other members present that there would
be a special presentation on this question. We were all asking similar
questions on the basis of these options and the policy considerations.
Dr. Rivlin has ady offered between now and when we hear from
Secretary Rumsfeld on March 9 to have that kind of briefing so
we can more i ligently cross-examine the Secretary of Defense.
Go right ahead to that next chart now.


Mr. P My nex and last chart similarly shows this in terms
(in billions of dollars, outlays)
FY 75 Traasition
(Actual) Y 76T Quarter FT 77 FT 78 *T 79 FT 80 FY 81
ULRRENT POLICY 86.7 91.9 24.8 103.4 114.5 118.0 127.2 135.6
(Path B)

(Declining Forces)

o PTION B 10 ,1 118.7 131.1 144.6 157.8
(Increasing Forces)

-O O 101.1 112.9 121.5 132.4 142.8

Mr. PTRIE. As you can see, there is a s read in fiscal 1977, CBO's
low option is $98.3, the current policy option is $103.4, the President's

The primary reason why the President's budget is below the cur-
rent policy budget, as we said before, is the manpower cuts, pay cap,
That concludes my presentation, Senator.
Dr. RIVLN. That does it. We will go back and work on some of
the things you have asked for.
SenatorHOLLINGS. Tis has been a splended presentation. It has
provided a capsule of notonly the options but all the correlations

I had a couple of things. From the staf study of the defense budget's
manpower and the general-purpose combat questions, there has been
an increase of 7,500 personnel between mid-1974 ad the present,
and the administration plans to add another 25,100 names to the
general-purpose forces during 1.977. The main troop force reductions.
then have been reductions mainly in support forces.
We have talked about going from the tail to the teeth. B he
administration has decided to take out some of these forces number-
ing 92,600 in all counting the planned trasfers of 1977, put
them all in the Army, Navy, and Air Force combat units.
Now, how are these people being used at the present, an an you
tell us what the total costs are for that transfer for this particular
fiscal year, and the next 5 years with respect to the increase i combat
strength costs ?
Mr. NELSON. I don't have those figures with me today.
Senator HOLLINGS. Can you furnish those for the record?
Mr. NELSON. Yes.
Senator HOLINGS. That would be one thing we want to have an
answer on.
[See question 3, and the response, beginning on p. 52.]
Senator HOLLINGS. We have some additional questions with respect
to manpower. But Secretary Rumsfeld has stated the Soviets are sur-
passing us in every weapons category. That would be part and parcel
of that briefing with respect to policy.
Are we really preparing for a threat or are we increasing to keep
up with the Joneses or just exactly what is it ?
Dr. RrvmN. We will try to deal with some of those questions.
Senator HOLLINGS. We also have a GAO report imminent. Did you
have a chance to get into that ?
Mr. NELSON. I don't believe the report is out on the contributory
retirement. I have not seen it.

Senator CHILES. We hope to have, also, Mr. Chairman, if we can get
it, that function oriented breakdown from the Defense Department.
As soon as we get that, we ought to really get them to look at that and
give us some comparisons on that. That mission breakdown is goin
to allow us to look at the Mediterranean, for example, and determin-
what they say we need to meet the threat in the Mediterranean, what
we need to meet the threat strategically, compared to what we need for
a conventional base in Europe.
From my understanding it was only staff that went to that meeting.
The Defense Department kind of called a meeting of the staff of the
Budget Committee, and also Appropriations Committees and Armed
Services Committees of both Houses, and came to th meeting an
said, "Here is this terrible amount of information thia the Budget
Committee of the Senate has required from us and I guess we will do
it." ,,
They got the House side all upset, saying "Why do you need any of
that" and everything like that. I understand that the staff of the Ap-


Senate side stood with us and I think that is something we want to

-have that.
Senator Cymi s. We can express our thanks to them for staying with
us because for a while we were hanging outside completely by our-
selves just the Budt Committee and all the other side, evidently the
staff of the Armed Services Committee on the House was very upset-

Senator DoNc Could I ask one general question, Mr. Chairman?
gory while we carry all thether retirement programs for other agen-
cies n the income security function. I am not necessarily promoting or
promulgating a change, but I am wondering whether or not any
thought is beng given to the concept of putting military retirement in
the category of income security or the function of income security and
.Dr. rojA. I think the rationale is simply reti srement-is retire-
be sensible to look at them together.
Senator HoLLIes. But one is contributory, while one is not.
Dr. Rv It might be sensible to look at them together if only to
moved around in the budget that might become a little more obvious.
That is not to say it should be changed, necessarily, but certainly
Sin t then thinking abt the long-run
problems of how all this money is escalating would lead one to qes-
tion whether they should be treated differently.

Senator D I submit that there is really some rationale to
consider them in the same category from the standpoint of this whole
analysis today of preparedness, and only to the extent that it is an
enticement to keep a military person around. When you take $10, $12
billion and it is in retirement, it certainly is not at that point in time
contributing to the then military strength of our country and I think
there is some rationale to clearly understand that a huge portion of
this budget is not going to active personnel. It is not going into pro-
curement. I do not know ifthereisanyother reason that it should be
considered in the income maintenance function, speaking budgetarily
only though.t
Senator HOIENma. Budgetarly you do not think the pension is re-
lated to recruitment. Everyone I know in America who wants to retire
In 20 years is doing it. It is the finest deal I know of.
Senator DOM Ic. It might dramatize what is actually being spent
by our country on a year-to-year basis for active military preparedness
and rocurement if wedidnot have the pensions in it, for theydonot
to fBof conryan
|~~ to a~ porto o
It is not into pro-E~

contribute at that particular year to what we have by way of prepared--
ness. Over the long haul certainly it is needed to keep the military go-
ing, because it is part of the program, but you are putting in un
ths projection we will have $12 or $13 billion in there in 1981 that is
purely for pensions.
I am just suggesting that we do not treat the rest of the, Federal
bureaucracy and agencies that way. We put them all in one basket
under income maintenance.
Senator HOLLINGS. I understand your point.
Senator DOMENICI. Or we could move the others into those agencies
to get a better picture of their expenditures.

Senator HOLLINGS. We should look at them because I would not
want to reduce the defense budget by transferring out. That is one of
the salutory approaches, I believe, that we are considering. There are
many that resist us on trust funds, highways, and social security, be-
cause we do not budget them as they are noncontrollable. I think if
we are going to be consistent-and it has been good-let us keep this
as a cost of the military.
As I see it, it is a matter of attraction. The policy of actual recruit-
ment of personnel and the maintenance of them for 20 year-1 yars
of actual service the Government and 7 years of schooling and then
paying them on the longevity table another 25 to 30 years at 50 per-
cent base pay-is one that people are beginning to understand. In the
next 2 or 3 years, I think, they will resist it.
I just think they are going to say this thing is just too costly, re-
gardless of whether it keeps up a voluntary Army. I think today's
seminar is one of the best we have ever had. We will eep the record
open for staff questions to complete this particular record. We will sub-
mit them in writing today and have it in the record and completed with
your answers.
Thank you very much.
[Whereupon, at 11:50 a.m., the task force adjourned, to reconvene
at the call of the Chair.]
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Question 1:
As you kow, we are interested in finding and cutting the waste in the Defense
Department. e Defense Task Force has been looking at manpower, and the.
staff has come up with a preliminary list of areas where we must save about
100,000 manpower spaces.
I would like to get your general views on this issue of manpower cuts. First,
can you estimate how much we would save in 5 years by eliminating 100,000
spaces from active manpower?
We hav been told that there are other areas in which savings might be
achieved, for example, military bases. It has been calculated that a base con-
sdation prram could elimnate 70,000 manpower s s if we went back
to the same nu r of personnel per base as in 1971.
Does this appear to be a reasonable and feasible approach to saving man-
power? Are the numbers of spaces hat might be saved through base closings and
It would appear that some further savings in manpower spaces could be
d increased, first-er reenlistments thus increasing the experience
level of the force, and by reducing formal and on-the-job training costs and
manpower. Can you give us a sense of the magnitude of potential savings if
this can be achieved?
Are there, in your view, built-in inefficiencies in the way defense manpower is
trained and used?

e not have any special information on savings from base closings, so I
cannot argue with your arithmetic on saving 70,000 spaces. However, that is
nearly 20 cent of all base operations support personnel Defense has asked
for 1977 would be very large savings to expect through efficiency gains.
The minimum time for closing bases is usally put at 2 to 21 years and this
would elay any savins util 1978 and beyond. I also noticed, Senator, that
you had cuts in training staffs listed separately. There may be a poem with
double counting since training manpower ually includes a slice of base opera-
tions personnel, particularly for those bases that are primarily training facilities.
he manite of potential savin from using more experienced personnel in
the mil y on three very importan factors, and thus I cannot give you
r or eve nestimate whether savings actually will occu. First,
t depends on the military speciaty involved. Better retention would not be a
p ev service occup n, since more experienced personnel are paid more.
itn the services revising the old pattern of using journeymen
ad s isors to provide onhe-jo ning for newly-trained recruits. Also,
improved retention may disrupt normal promotion patterns, so that new methods
of personnel management might be desired. Third, the current retirement system
makes it very expensive to pein for 2 years or more. Yet the serv-
ices only rarely force out enlisted personnel after the first reenlistment because
i n e prir o 2 years. Retiement reform
like RMA would change this, so that the service could reenlist a man but only.
Finally, returning to your first question, Senator. Our Budget Analysis group
estimates that savings from reducing the military by 100,000 men would be $1,228
million.annually by 1981, if manpower cuts were spaced evenly over the next
five years. The accompanying table shows the annual savings from such a pro-

1:(51) $

9,~~a~l ~ ac~r;8r


End strength Average strength Savings I
below 1976 elow 1976 (millions)

1977 --. -- 20,000 1 $00
1978 .-.-.---------......-.-- 40, 000 30, 000 340
1979 ..... ..... .. .... 60, 000 5000619
1980----................--...... 80, 000 900
1981...........-------- ----- 100,000 90,000 1,239

1 Based on average compensation costs for enlisted and officer personnel, incuding basic
pay, quarters and subsistence allowances, FICA contributions, initial clothing, enlisted and
Sofricer accession travel.

These savings assume a grade mix equal to the average for DoD as a whole
and assume no additional travel costs or other personnel cst

-Question 2:
Military personnel now participate in two pension programs. is cont
utory, the other is not:
The contrbutory system is social security. Contrbution is 5.85 basic
pay up to $15,300 a year. Pensions begin at age 65.
SThe o-cotribtory system is military retirement. Pensions are far more
generous, and begin upon retirement after 20 or ore years of service
Federal civilian personnel do not participate in social security, and contribute
7 percent of salary to their federal retirement system.
Should a contributory military retirement program be added to the socal
security contribution and participation, or substituted for it?
What would be the impact on the social security trust fund of ending m
service contributions and benefits?
Answer 2:
The first part of your question raises some difficult issues, Senator. Social
Security, as you know, is only a pension system in part. Survivor benefits and
disability benefits are an important part of the system, and according to some
sources, it was to secure these benefits that military personnel were placed under
the Social Security System. The FICA contribution is a tax levied on both em-
ployer and employee, but unlike most taxes, the employee also benefits because
he earns credits leading to better Social Security benefits e. Even if contrbutons
to retirement were required of military personnel, many may prefer to continue
paying Social Security taxes-and qualify for future benefits. As long as the two
pension systems remain inddependent, there do not appear to be any obvious
inconsistencies in requiring contributions to both.
Employer and employee FICA contributions currently total $1.7 billion per
year. The median age of military personnel is 24 years, and consequently, the vast
majority of persons making contributions today will not draw old age benefits
for 30 years or more. In the long run reducing the covered population by the
2.1 million men in military service should not make any difference in an
actuarially sound system. However, in the short run and over the next 20 to
30 years, removing military personnel from Social Security may severely reduce
the magnitude of the Social Security trust fund. In 1977 the Social Security
deficit is expected to be $3.5 billion. Eliminating the military as contributors
would increase the deficit by 50 percent.
Question 3:
I see from a staff study of the defense budget tht manpower in the generl
purpose combat forces has been increased by 67,500 personnel between mid-1974
and the present, and furthermore I understand that the Administration plans to
add another 25,100 men to the general purpose forces during 1977. The men trans-
-ferred to the combat forces have come from reductions taken mainly ln support
forces. As I understand it, the decision was made that we needed to increase
the "teeth" of our armed forces and reduce the "tail", so instead of realizing fui
budget savings from the reduction in unneeded support manpower, the Admin-
-istration decided to take some of these men-numbering 92,600 in all, counting
-the planned transfers in 1977-and put them into Army, Navy, and Air Force
-combat units.


How are these people being used? Can you tell us what the total costs are in
this budget and for the next five years of this increase in combat strength? Please
tell us what portion of these costs is attributable to having the added people in
the general purpose forces and what portion is attributable to the formation
and equipment of new combat units, assuming that modernization of existing
forces would continue at about the planned rate.
Are the extra combat forces required in any absolute sense? What added bene-
fits do they provide? Do we need further increases? We would like to hear your
estimates and views on this subject this morning, and you may subsequently
provide a detailed answer for the record.
Answer 3:
The Administration has transferred military personnel from support to new
combat units without providing additional hardware to equip either the three
new divisions in the Army or the four additional tactical fighter wings in the Air
Force. In the Army, creating the new brigades and divisions will take place over
three years, and Defense asserts that this is long enough to avoid additional costs
associated with greater turbulence in the forces. Hence costs are very small over
and above the 92,600 men transferred from support to combat units. We found
some funds in family housing and military construction for barracks, but only
about $25 million in 1977. We are already providing to you separately at your
request the savings from reducing 100,000 men over the next five years. These
same planning factors could apply to the 92,600 figure as well.
Beyond manpower cuts, decisions will have to be made to buy tanks and air-
craft to equip these new combat units. CBO estimates it would cost $1.9 billion
to equip three Army divisions to fight in the central European theater. Also, it
would cost $3.6 billion to equip four tactical fighter wings calculated on the
assumption that two wings are F-15s and two are A-10s. None of these costs are-
in the President's budget for FY 1977, but they are included in the CBO's high
option for FY 1977 through 1981 that Mr. Pirie presented to you already during
the briefing.


r ~

i.......... I



D tage
Pension costs part of military_- 50
Defense budget: Page President's national defense re-
Alternatives could lead to greater quest --------------- 23
savings---- ------------- 3 Range of ups and downs-------42
Authority ----------- ----- 3 Real growth-- ----------- 4
Apparent real growth_---.. 24, 25 Redefinition of comparability--- 12
Real growth in procurement- 45 Required legislation ---------- 28
Big increases and decreases----- 1 Congressional cooperation-..- 28
Changes in existing statutory Retirement---- 13, 15,18,23,49
law -------------12 Ideas underlying -- ------ 16
Combine contributory retirement RMA and IAC are long-run re-
with RMA or IAC------ 21 forms ------------------- 20
Effects of----------- 21 Shipbuilding----------- 31-33
CBO annual report options--- 30 Stockpile sales--------- 29
Cost comparisons------------- 20 Large stocks of some com-
Cost implications-major na- modities -------- 29
tional security options--. 43, 44 Strategic program costs----- 41
Current policy----------- 24
Defense manpower----------- 9, 11 F
Defense research and develop- Forces:
ment ------------------- 42 Advanced tanker cargo aircraft-_ 40
Five-year projections------- 27 Aircraft, increase in------ 38
Five-year shipbuilding budgets Alternatives and options. 4,40,41
under title VIII------- 33 Ground--------------- 36
All nuclear ----------Tactical air ------------ 37
Growth in retired pay--------- 14 Armor, President's proposal for- 38
High option higher than Presi- Function-oriented breakdown-.. 48
dent's budget------------- 38 .Goals for mid-1980's ---------- 40
Impact of inflation---------- 4 Three new divisions ------- 38
Income maintenance------- 49 Troop reductions mainly in sup-
Increases in-2 port ----------------- 48
Major spending restraints---- 2 Two variants for strategic ------39
Military and general scale pay Six hundred-ship Navy---------- 34
cap -----------10 Strategic offensive goals-------- 39
Wage board cap--------- 10 Structures required----------- 47
National security summary: United States versus Russians in-
Budget authority ----------- 46 ships ----------- 31
Outlays --------------- 47
Navy shipbuilding programs-... 30 M
Ninety-ship backlog ----- 30
Nuclear powered vessels---- ---32 Manpower:
One-percent kicker-------- 10, 14 (see also Personnel) :
Effects of------------- 1-5 Costs----------- 5, 6,23
Effects of elimination-------- 15 Comparalbility --------------- 7
Two proposals to eliminate- 14 Sources of growth---------- 6, 7
Options under budget------ -- 45 Average age of men in the mili-
Other compensation cuts--- -10,23 tary service--------------- 18
Outlays: Real growth- ---- 26, 27 Combat strength, increase in-.. 52
Pay cap------------------.. 12,22


Manpower-Continued Page Manpower-Continued Pg
Comparable pay scales, etc --- 7 Retention patterns ------ 16
Comparability ------------ 22 In the military --------17
Issues -------------- 4, 5 Some pensions create emotional
Limited pay raises may cause re- problems ---------- 20
cruiting shortfalls ---------- 13
Options ---------------- 22 P
Pay raise caps ___....._.. .5...
Pay raise caps---------------- Personnel (see Manpower)
Pension programs............. -------------52 Po qel is mpo e
Personnel cut --------Poy questions complicated....
Retirement: R
SModifications ----------- .
Reform ------- --- 19,20 Rational evaluation of needs-.. 2
Twenty years too short? -- 19

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